10/13/2009 @ 1:15PM

Comcast Waits For 'Oui' Or 'Non'

The fate of NBC Universal could soon be decided behind closed doors in a Parisian boardroom.

At its meeting Wednesday, the board of the French telecommunications and media company Vivendi will likely discuss whether to sell its 20% stake in the
General Electric
-controlled entertainment conglomerate. A decision to sell could set in motion a chain of events that would transform NBC Universal, making possible a rumored merger with cable giant
Comcast
.

Under the scenario being discussed, General Electric would acquire Vivendi’s stake and then spin off NBC Universal. (GE shareholders would receive shares of the new vehicle.) In exchange for a 51% stake in the new company, Comcast would contribute its cable channels (E!, G4 and Versus, among others) as well as $5 billion to $7 billion in cash. The company could add to its stake by gradually buying GE out of the partnership.

However, any deal is contingent on Vivendi offloading its stake. The French company’s yearly ritual of reviewing its minority ownership dates back to 2004, when GE agreed to purchase its Universal studio, which included a film studio, theme parks and entertainment cable channels. Among the deal points: beginning in 2006, Vivendi was given the right to notify GE of its plans to sell its share at “fair market” value every November.

In years’ past, Vivendi had little reason to sell. But cashing out today would provide capital for more acquisitions in industries like telecommunications and videogames, where it’s already a significant player. In 2007, Vivendi acquired majority control of videogame publisher
Activision Blizzard
, producer of popular titles “World of Warcraft” and “Guitar Hero.” More recently, the French company was the leading contender to acquire Brazils fast-growing telco GVT for $2.9 billion (it was outbid this month by Spain’s
Telefonica
). Indeed, Vivendi Chief Jean-Bernard Lévy called the stake in NBC Universal a “non-core” asset during a conference call with investors in September.

To be sure, Vivendi may decide to hold onto its NBC Universal stake for another year, a decision that comes with its own set of risks. Among them: A weakened economy could wreak further havoc on the media sector, depressing NBC Universal’s value still more. Plus, there’s no guarantee NBC’s assets could find a buyer as motivated as Comcast appears to be now.

For the latter, owning a majority stake in NBC Universal would give it control over popular content from the broadcast network and top-rated cable networks like USA and SyFy, as well as Universal’s film library, at a time when cable operators are facing increased competition from telecom (
Verizon
and
AT&T
) and satellite (
DirecTV
and
DISH
) operators. A recent study from research firm SNL Kagan predicts cable TV operators like Comcast are poised to lose 2.2 million subscribers to their pay TV rivals over the next five years. The purchase would also act as a hedge of sorts against rising programming costs, which
UBS
projects will climb nearly 10% for Comcast this year.

What’s more, through NBC’s ownership of ad-supported Web video outfit Hulu, Comcast would have a greater say in how popular TV shows are streamed online. In their current form, free streaming services like Hulu and YouTube undermine the value of pay TV subscriptions, which account for 67% of Comcast’s revenues.

Other potential synergies include the companies’ sports assets. Pairing Comcast’s cable properties (Versus plus The Golf Channel and a host of regional sports networks) with NBC’s rights (Sunday night NFL games though 2013 plus the 2010 and 2012 Olympic Games) could make for a viable competitor to
Walt Disney’s
lucrative sports juggernaut ESPN. In addition to a second revenue stream from subscription fees, a merger would give the new entity an even larger cut of the televised sports market, which TNS Media Intelligence estimates advertisers lavished $10.6 billion on last year.